Ohio’s tax cuts favor the affluent, do not create jobs

- July 7, 2014

Ohio’s new tax cuts favor the wealthy,  families and neighborhoods pay.  Abandoned houses dot the landscape, community efforts to get quality pre-K off the ground need a boost, and shocking infant mortality rates go unchecked, while jobs growth languishes.

Read the original column.

This piece originally appeared on cleveland.com.

Tax cuts. That’s the main answer for Ohio’s challenges that our General Assembly had in its latest budget, approved last  month. To be sure, the legislature enacted some useful changes, bolstering protective services for children and adults, for example. But the overwhelming share of new resources – more than $400 million for the next budget year – is going to income-tax cuts.

Meanwhile, deaths among the youngest Ohioan – our infants – remain shockingly high. Our cities are pocked with vacant and abandoned properties, casualties of the foreclosure crisis. Coalitions in the state’s biggest cities are rallying to expand support for preschool. These are just a few of the major needs that went without major action. Instead, we’re getting tax cuts. More than three-quarters of them this year will go toward expanding a tax break for business owners and speeding up a previously approved rate cut so it takes effect this year.

These cuts do not create jobs. The legislature passed a tax-cut package a year ago, including income-tax rate reductions and the business-owner tax break; since then, job growth in Ohio has lagged behind what it was just before the tax cuts, and behind that of the country as a whole. We tried this in 2005, when we slashed income-tax rates and eliminated Ohio’s corporate income tax. Since then, Ohio has lost jobs, while the nation has gained them. While the state unemployment rate has fallen from its peak, a large part of the decline reflects more than 100,000 Ohioans who have dropped out of the labor force and are not officially counted as unemployed. 

The tax break for business income goes to anyone who shares in the profit of a partnership or other entity whose income passes through to its owners. The vast majority of those who can take advantage of this do not employ anyone and are unlikely to do so. Many are self-employed, earn side income from other jobs, or are passive investors.  Though overnight this tax deduction became one of the biggest breaks in Ohio’s tax code, it is spread among hundreds of thousands of owners who have averaged just $731 in annual tax benefits apiece so far. It’s no surprise that that isn’t generating much job growth.  This is a classic case of throwing money at a problem—and not solving it.         

Like other income-tax cuts, the latest batch favors the wealthiest Ohioans.  An analysis by the Institute on Taxation and Economic Policy, a nonprofit research group with a model of the tax system, found that the top 1 percent of Ohioans, who had incomes of at least $360,000 last year, will receive an average tax cut of $1,846. The middle fifth, who made between $34,000 and $54,000, will see an average tax cut of just $36 (see http://bit.ly/1hliDdB).

Overall, half of the tax cut this year will go to the 5 percent of Ohioans with incomes over $151,000 a year. Though the tax package includes an expansion of the state Earned Income Tax Credit, a positive step, this does little for the poorest Ohioans. The bottom fifth, who make less than $19,000, will get just 1 percent of the tax benefits from the package, or a princely $4, on average.

Instead of reinforcing inequality with tax cuts that favor the affluent, we should use this revenue to restore funding to local governments, which have cut tens of thousands of workers. We should invest in education, health and human services. That would bolster Ohio’s communities, build opportunities for children and create the infrastructure business.

Policy Matters Ohio is a nonprofit, nonpartisan state policy research institute

with offices in Cleveland and Columbus.   Zach Schiller is Research Director.


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